Choice "b" is correct. No gain or loss is recognized by either the parent
corporation (Forrest) or the subsidiary corporation (Diamond) when the parent,
who owns at least 80% of the stock (Forrest owns 100% of the stock), liquidates
its subsidiary. The parent assumes the basis of the subsidiary's assets as well
as any unused NOL carryover, capital loss carryover, or charitable contribution
carryover.
Choice "c" is incorrect. The $70,000 is the difference between the $270,000
adjusted basis of the property received in the distribution and Forest's
$200,000 basis in the Diamond stock. That difference does not represent the
amount of gain recognized by Forrest on the distribution.
Choice "d" is incorrect. The $270,000 is the adjusted basis to Diamond of the
property received in the distribution. That amount does not represent the amount
of gain recognized by Forrest on the distribution.
Choice "a" is incorrect. The $500,000 is the fair market value of the
property received in the distribution. That amount does not represent the amount
of gain recognized by Forest on the distribution.
